SAF Professor Serves on Sustainable Water Management Project

By Stephen A. Jones

“Water, energy, and affordability: Key drivers in the financially sustainable management of urban water infrastructure.” For SAF professor Neil Brisley, the stand-out phrase in the title of this project recently approved by the National Science and Engineering Research Council (NSERC) is “financially sustainable.”

“I’m working with the project team on a conceptual framework for the viability of infrastructure initiatives,” says Brisley, a finance professor and director of the CPA-SAF Centre for Capital Markets Education. “We are looking at the interactions between revenues and expenses in complex systems.”

The $450,000 NSERC grant awarded to four University of Waterloo professors is matched by an equal amount of cash and in-kind support from four municipal partners—the Ontario cities of London, Niagara Falls, and Waterloo, plus the Region of Waterloo. The partners provide staff time as well as access to datasets and other vital information.

It’s not every day that you’ll see a finance professor involved in this kind of research. And it prompts SAF director Tom Scott to offer an intriguing comparison. “Just as our students provide necessary skills and knowledge to a diverse set of organizations,” he observes, “professor Brisley is demonstrating how our faculty members can productively tailor their capacity for research to contribute to solutions to various global challenges.”

Crisis in infrastructure

Governments everywhere are facing a crisis in infrastructure, municipal waterworks included.  The Province of Ontario, for instance, now mandates that municipalities with a permit to distribute water to residents must ensure their water systems are self-financing, that is, financially sustainable. And this in the midst of maintaining and replacing infrastructure that everywhere is showing serious signs of deterioration. 

“While this seems like an obvious requirement, it’s a fundamental paradigm shift in how municipalities operate,” says André Unger, principal investigator and leader of the four-person team. A member of the Earth and Environmental Sciences department in the Faculty of Science, Unger has a long-standing research interest in sustainable water resource supply.

Brisley is helping Unger and his colleagues get a handle on projecting and optimizing, matching revenues and expenses, investment, and financing. “I try to bridge some gaps,” he says, “and to bring mainstream finance thinking into play.”

“We have already done a lot of work on the expense side,” Unger explains, “but we need to be able to forecast the revenue side. Neil is great at distilling and focusing on the important issues. He brings a different perspective—and gets us past our own vocabulary. He helps us see the underlying structure of our proposals and their consequences.”

Collaboration across disciplines

Brisley, who was invited to join the project, has had previous exposure to the engineering and science side of campus. He has served on examination committees of PhD candidates in Management Sciences, Environmental Science, Actuarial Science, and Engineering. He is also one of a handful of professors outside the engineering, environment, and science disciplines who serve on the University’s 145-member Water Institute. The Institute (water.uwaterloo.ca) ranks in the top ten such organizations worldwide.

Rounding out the team are Carl Haas and Mark Knight, both faculty members in Civil and Environmental Engineering at the University. Hass holds a Canada Research Chair and is an expert on asset management strategies. Knight directs the Centre for Trenchless Technology, which focuses on viable, cost-effective ways to handle infrastructure degradation.

Collaboration among four professors from three faculties (in this case Science, Engineering, and Arts) is relatively rare at Waterloo, and presents unique challenges. Communication is key, and team members are learning how to translate their professional languages into terms each other can understand.

At a recent meeting the quartet listened with special interest to a UK expert who outlined how the regulator maintains quality standards and economic viability among the 28 privatized local water companies in the  complex national public-private waterworks system.

Article raised questions

The NSERC grant enables Unger, Brisley, and their associates to proceed with work started under a previous grant, and to incorporate the much-needed financial component. The grant runs till 2018 and includes salaries of graduate students participating in the project.

            “What may have helped move our NSERC application forward was an article we had already published!” Unger explains. He and Brisley, with two other colleagues, wrote “An Implicit Model for Water Rate Setting within Municipal Utilities” for the peer-reviewed Journal of the American Water Works Association (www.awwa.org).

“We raised some fundamental questions for municipalities,’’ says Unger. In the 2015 article, the authors argued that understanding changes in water demand is crucial for accurate price forecasting. They offered a model of “time-dependent” system revenues, water prices, and water demand, essentially a theoretical basis for rate-setting to generate financially sustainable revenues.

What Brisley, Unger, Hass, and Knight are now doing will advance and extend discussions of financial sustainability now underway in many municipalities. The team will issue progress reports at the beginning of 2016 and 2017.